Gensler rejects cross-border compromise as delay for Wall Street

U.S. Commodity Futures Trading Commission Chairman Gary Gensler insisted the agency push through its cross-border derivatives rules next month, a goal he said would be delayed by a fellow Democrat’s proposal.

Gensler told senators today the commission should finish its cross-border guidance by July 12, when an exemption from the proposal expires. Commissioner Mark Wetjen said earlier in London the CFTC should adopt “interim final guidance” that could be amended based on additional industry and public feedback.

“It means delay and I think we’ve had a year to do this,” Gensler told reporters after testifying at a Senate Appropriations subcommittee in Washington. “The American public should hold us to task if we can’t get this done by July 12. They should say, ‘Why does it take so long and are we doing too much to accommodate Wall Street?’”

The five-member commission’s two Republicans, Jill E. Sommers and Scott O’Malia, have said they want to delay final action on the cross-border guidance. Republican senators today also pressed Gensler to take more time. The guidance document explains how the CFTC’s derivatives rules apply to foreign banks and affiliates of U.S. banks and hedge funds.

In his London speech, Wetjen said it is “absolutely essential” that the interim final guidance gives the marketplace time to adjust.

Discouraging ‘Reforms’

“We must consider carefully whether stepping in front of the regulatory process discourages the very financial reforms that we are trying to implement, which could in turn needlessly complicate the commission’s efforts to contain systemic risk and protect the U.S. taxpayer,” he said.

The Republican senators said the CFTC should try to harmonize its rules with those written by overseas regulators and the U.S. Securities and Exchange Commission. Under the 2010 Dodd-Frank law, the CFTC and the SEC are writing rules to regulate the $633 trillion global swaps market, with the CFTC given authority over most of the activity.

“Is the marketplace truly ready for action to be finalized on the 12th?” Senator Mike Johanns, a Nebraska Republican, asked at the hearing. “Or should we follow the advice of one of your colleagues on the commission who says let’s take a deep breath here and gather some more input before we drop the hammer on this.”

Gensler said market participants, including big banks and other swaps dealers, are prepared to comply with the CFTC’s rules. He said the rules are needed to police derivatives trades that are often conducted overseas but guaranteed by a U.S.-based parent company.

“It is not a surprise that Wall Street and yes, the financial firms overseas, will say this is so confusing, we need more time,” Gensler said. “What they are really saying behind that is don’t apply these common-sense reforms when we operate in our offshore jurisdictions.”